White House Pushes to Extend College Tuition Credit

The popular American Opportunity Tax Credit helped an estimated 12 million college students pay for their education. The popular credit is set to expire at the end of the year, however the President has suggested extending the credit to continue helping students who cannot afford to pay for college.

CNN Money.com reports:

The American Opportunity Tax Credit helped soften the blow of college tuition for more than 12 million students last year, but it's due to expire at the end of this year unless President Obama gets his way.

To remind Congress of the importance of extending the credit, top government advisers spoke to reporters Wednesday about why they believe the break is worth keeping around.

"[Obama] believes that it is important for this to be extended and for families to have the certainty and confidence that this [credit] will be there when they are making the choices about sending their children to college," said Gene Sperling, Counselor to the Treasury Secretary.

The tax break, introduced under the government's 2009 Recovery Act and applicable to 2009 or 2010 college tuition, expands the existing Hope Credit to include more lower- and higher-income Americans.

Unlike the Hope Credit, the AOTC is also partially refundable and covers more of the expenses associated with sending a child to college, like textbooks and computers. It is available for the first four years of post-secondary education, up from two years under the Hope Credit.

Read more here

Student Loan Debt Exceeds Credit Card Debt In USA

Almost all Americans have at least some credit card debt, however according to USAToday.com the total student loan debt exceeds credit card debt in the country. As of June, the consumers in the country carry a total balance of $828 billion of credit card debt, while students owe an astounding $850 billion in loan debt.

Oddly, some students don't even know how much they owe — or to whom.

"I'm scared to know," said Carla George, 20, of Detroit, a junior majoring in biology at Wayne State University. She knows that her mother, at one point borrowed about $10,000 through a federal Parent Loan for Undergraduate Students. The PLUS loan lets parents borrow for costs not covered by a financial aid package.

George estimates that she has taken out at least $10,000 in other loans.

"I think it's a whole bunch more," she said.

A college diploma and a good job are supposed to be the payoff for years of hard work in school. But for thousands of today's students, there's going to be a payback, too — as those loans come due after graduation.

Some college students are failing financially long before they get a diploma — or a ‘grown-up’ paycheck.

"Students are far worse off today with student loan debt," said Alan Collinge, who runs a website called StudentLoanJustice.org, where students discuss their troubles with college loans.

With tuition far outpacing inflation for the past 20 years, student borrowing has continued to grow — a whopping 25% last year. Some students who are borrowing never expected to, but their parents have lost jobs or suffered other financial setbacks in the recession.

Continue reading at USA Today.com…

The Best Starter Credit Cards

Credit card companies frequently setup tables on college campuses these days, and often prey on vulnerable students who are already strapped for cash. Luckily, new laws have tightened restrictions on banks that offer credit to students, such as income and age requirements.

NewsWeek.com put together a great article on which credit cards are the best for “credit virgins,” read more below.

Laura Lee got her first credit card during the freshman Welcome Week at Central Michigan University.

“[Representatives] sat at a long table in the Student Union just outside the large conference room with displays from all the on-campus student organizations,” she tells MainStreet. “[I could] sign up for a Sears card, get a $5 gift certificate and a tote bag full of gifts.”

The opportunities to take on credit didn’t end there, however. Weeks later, applications from Citibank, Discover Card, J.C. Penney and Chase started appearing in her dorm room mailbox. By the holiday season, Lee’s wallet was bulging with plastic.

“They all welcomed this 18-year-old consumer with open arms,” she says.

Of course, credit issuers aren’t giving out cards quite so readily these days. Under the CARD Act, companies are now prohibited from issuing credit to anyone under 21 unless the applicant has a stable source of income or a willing co-signer. But college freshmen aren’t the only ones faced with roadblocks when trying to establish credit.

Continue reading at NewsWeek.com…

The American Opportunity Credit

Earlier today the Roni Deutch Tax Center – Tax Help Blog posted a new entry explaining the American Opportunity Tax Credit. As the article explains, the new credit is actually just an expansion of the Hope Scholarship tax credit, with a higher maximum and a longer life span.

Credit vs. Deduction

Unlike a tax deduction, which lowers your taxable income, a credit lowers your tax bill (or increases your refund) dollar for dollar. The exact value of a deduction depends on your tax bracket, while credits are a set amount no matter what income bracket you are in.

Value of the Credit

The new credit has a maximum of $2,500 and can also be claimed for up to 4 years.

Eligibility Requirements

According to the IRS only qualifying full-time college students are eligible for the credit. Although it is available for 4 years, the actual amount you are eligible to receive will vary on your income level. Additionally, unlike past credits the American Opportunity Credit is 40% refundable, so even families who do not pay income taxes will be able to take advantage of the tax credit.

Hire this Summer and Get a Tax Break

If you are an employer, you don’t want to overlook the HIRE Act tax benefits. If you are looking to hire some new employees, college students are a great idea for a summer position. This is exactly what Congress is trying to encourage people to do, hire an employee who hasn’t worked more than 40 hours in the last 60 days before getting hired, and you may qualify for a temporary tax break. Passed in March, the Hiring Incentives to Restore Employment (HIRE) Act would allow an employer with any qualified hire after February 3rd to skip paying the 6.2% Social Security taxes on the worker’s wages from March 19 through the rest of the year. This would save an employer nearly $2500 on $40,000 of pay.

A qualified hire would be someone who is unemployed this year (after February 3, 2010 and before Jan 1, 2011) and has not worked over 40 hours in the last 60 days.

The law is most useful to large corporations where they can use the HIRE provisions to save millions of dollars, but the law is also useful to small businesses. For example, these tax breaks work for businesses this summer who want to hire kids on summer break to help with paperwork or businesses that want to hire college students who haven’t worked elsewhere in the last 60 days and therefore, would be considered a “qualified employee.”

Student-Loan Reform

From Time.com:

Government takeover!" So yelled the many critics of President Barack Obama's health care reform bill. But in their focus on the main event, Republicans seem to have all but ignored another part of the legislation that more precisely fits their rhetoric. In addition to securing the President a victory on health care, the House bill took him one step closer to delivering on a promise to reform the college-student-loan system. If a final piece of legislation before the Senate is approved, millions of students will get their federal loans directly from the Department of Education. In other words, the federal government would sweep aside private competitors in the biggest change to the federal student-loan program since its creation in 1965. It's a legitimate government takeover.

So where's all that outrage now? The thing is, the government already runs much of the student-loan industry. For decades under the Federal Family Education Loan (FFEL) program, the government has handed out subsidies to large banks and companies like Sallie Mae that lend money to student borrowers and collect it from them. In addition, the federal government has been obligated to cover up to 97% of any defaulted loan, effectively eliminating risk for lenders. Figuring that money could be saved by cutting out the middleman, Congress created the Direct Loan program--in which money goes from the Education Department to students--in 1993. The programs have been in competition with each other since then.

Until now. Gone will be the subsidies, and gone will be the FFEL program. As of July 1, all new student loans will go through the Direct Loan program. The savings--an estimated $61 billion over 10 years--will be used to shore up and increase the need-based Pell Grant program by $36 billion and invest in community colleges. While the Administration has reason enough to crow about the proposed measures, it has had to scale back some of its bigger plans. An earlier version of the bill would have invested an additional $20 billion and offered even more substantial financial-aid increases. As it stands, $13.5 billion will be used to stem Pell Grant shortfalls resulting from the increased number of students forced back to college by the ailing economy. And a plan to raise the maximum Pell amount to almost $7,000 per year by 2020 has been replaced with one that maxes out at about $6,000.

With his first major piece of education legislation out of the way, Obama will likely move on to K-12 matters later this year as he attempts to rework the unpopular No Child Left Behind law. But before then, members of Congress (and America's students) are going on spring break.

Family Finance: Credit Cards Part of College Plans

Credit cards are often essential for college students struggling to pay for food and lodging, in addition to huge tuition fees. However, a new law is going to make it harder for students to get credit cards, and many families are being forced to reevaluate their finances to provide for students in college. The New York Times posted a new article explaining the new law and how it will affect students across the country. You can find a section of the post below, or read the full text at NY Times.com.

Choosing what kind of plastic a college-bound student should carry may seem like an easy decision to make after all the work it takes to pick a school. But a new law making it harder for students to get their own credit cards means most parents now have to choose whether to help their kids get one, or send them off with less flexible choices like debit or prepaid cards.

The right choice could help a graduate enter the working world with a strong understanding of how credit works and a solid credit rating. The wrong choice could be costly, not only in terms of how much debt gets charged up, but also in the potential damage to the credit histories of both parents and student.

One part of the new credit card law says applicants under 21 must prove they can pay the bill, or have a co-signer to open an account. But most parents want their kids to have some card available, at least for emergencies.

That leaves parents to debate whether they should co-sign, or get their child a card linked to their own account? They might also ask if a debit card or prepaid card would be a better option.

The answers depend upon several factors, including the student's spending habits, whether they have any income, and the strength of the parent's own credit history.

''This whole situation with college students and credit is starting to turn into a thorny issue,'' said Bruce McClary of Clearpoint Credit Counseling Solutions. ''A parent really has to gauge their comfort level, in how they observe their child as someone who manages money responsibly.''

Continue reading at NY Times.com…

Questions for the Tax Lady: March 1st, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If my college student wants to claim himself as a dependent when he files his return can I still claim his as a dependent on my return?

No. If you want to claim your son as a dependent and take an exemption for him on your return then he cannot claim a personal exemption for himself on his IRS tax return. Instead, he will need to check the box on his return indicating that someone else claimed him as a dependent.

Question #2: What should I do if I realize I made a mistake on my tax return that I have already e-filed?

If you make a mistake on your return then you will most likely need to file an amended return with the IRS. You should use IRS Form 1040X, and should expect 8 to 12 weeks for the IRS to process the amended return. For more information, check out this page on IRS.gov.

Even As Kids Pack to Go to College, It's Not Too Late For Aid

Earlier today I came across this great USA Today article reminding students and parents that even this close to school season, financial aid is still available for students. The article also offers several helpful tips on how to finance higher education in the tough economy, check it out below.

Few things are more demoralizing than receiving a bill that exceeds the amount of money in your bank account. Especially if your child's future hangs in the balance.

That's the predicament facing many cash-strapped parents of college students as bills for the upcoming semester start to arrive in the mail.

Fortunately, even at this late date, you have options. Among them:

Extended-payment plans. These plans let you pay your tuition bill in monthly installments instead of one lump sum. You'll typically pay a fee of $50 to $100 to set up a payment plan. The plans are provided through colleges and universities, so contact your school's financial aid office for more information.

You don't have to put the entire amount you owe on a payment plan, says Thomas Blair, director of financial aid at Roanoke College in Salem, VA. But paying even a small amount of the balance in monthly installments will reduce the amount you have to borrow, he says.

Federal student loans. Unsubsidized federal Stafford loans are available to all full-time students, regardless of financial need. They carry a fixed rate of 6.8%. For the 2009-10 academic year, dependent students can borrow up to $5,500 for their freshman year. Sophomores can borrow up to $6,500 and juniors and seniors can borrow up to $7,500.

To qualify for a federal student loan, you must fill out the federal Free Application for Federal Student Aid, or FAFSA. You can find the form online at www.fafsa.ed.gov.

PLUS loans. If federal loans won't cover all of your costs, you can apply for a federally guaranteed Parent Loan for Undergraduate Students to fill in the gap. Parents are responsible for repaying the loans, but have the option of deferring payments until the child finishes school. PLUS loans carry a fixed rate of 8.5%.

Budget Cuts Devastate California Higher Education

From the Associated Press:

When California college students return to campus this fall, they'll find crowded classrooms, less access to faculty and counselors, fewer campus services and more difficulty getting classes they need to graduate — all while paying higher fees.

The state's financial crisis is battering its world-renowned system of higher education, reducing college opportunities for residents and threatening California's economic recovery.

Faced with steep declines in tax revenue, states are reducing funding to public colleges and universities across the country. That could hamper the nation's rebound from a deep recession and undermine President Barack Obama's goal of making the U.S. the world leader in college graduates by 2020, experts say.

"It's going to be harder for me to continue to be in school," said Nancy Santana, 25, a single mother who attends San Diego's Miramar College and worries her financial aid will be reduced. "I may be forced to cut school and find a job without a degree."

No state is cutting more deeply than California, which has more than 3 million students attending college.

To close its massive budget deficit, the state has slashed funding to its 110 community colleges, the 23-campus California State University and the 10-campus University of California, one of the nation's leading research institutions.

The schools have responded by boosting fees, turning away record numbers of students, expanding class sizes, eliminating programs, laying off staff, and furloughing professors and other employees.